Inequality and Perceived Social Mobility

The leading presidential candidate in Chile, Sebastian Piñera, has proposed increasing the money the government gives to poor families to pay for school tuition. Like school vouchers in the U.S.

When this issue came up in a recent lecture I attended on Chilean politics, there was audible disapproval from people in the room. A French woman said that such policies create inequality in the education market and lead to greater income inequality in society at large. A Swiss and German nodded vigorously as the French woman spoke.

Europeans tend to focus on inequality. Latin Americans, too. Inequality is one of the top issues being debated right now in the Chilean election season.

Americans, on the other hand, by and large are not very concerned with inequality. Sure, it comes up and people talk about narrowing the gap. But deep down I don't think most policy makers and pundits think it's a core problem in a society. We continue to glorify the rich to a remarkable extent.

Why the contrasting views? It comes down to differing perceptions of how possible it is to go from poor to rich. If you believe there's a high level of social mobility in a society, you're not as bothered by a gap. If you think moving up the ladder is nigh impossible, it is a very big problem indeed, because it means the poor are stuck at the bottom, oftentimes due to rotten luck at birth.

Historically, Latin America has been a place where your last name weighs heavily on your success. "Meritocracy" is not the first word that leaps to mind when thinking about the rich and successful in the region. Europe, too, has a legacy of aristocracy and old money.

The American idea however is about the self-made man; the man who pulls himself up by his bootstraps and in a lifetime goes from very poor to very rich thanks to his own industriousness and imagination. There is a belief held by natives and immigrants alike in Horartio Alger stories. Social mobility in the States is not as great as people think, research suggests, but perception trumps all, right? A national narrative embedded in a culture commands a magnetic pull over everyone.

Bottom Line: How worried you are about inequality is driven in part by how much social mobility you think there is in society. Europeans and Chileans (and probably other Latin Americans) generally worry more than Americans about inequality because they do not perceive their societies as being as meritocratic and as amendable to upward social mobility.

The inequality in Chile is inter-generational. 30-40 year olds are rich, 50-60 year olds are comparatively poor. This is an important distinction. See this paper (in Spanish) by economist Claudio Sapelli for more.

Also, check out Will Wilkinson's self-recommending paper titled Thinking Clearly about Economic Inequality. In the summary he says, "There is little evidence that high levels of income inequality lead down a slippery slope to the destruction of democracy and rule by the rich."

14 Responses to Inequality and Perceived Social Mobility

Passion for Aristocracy and Old Money – you nailed it on European hypocrisy, Ben.

Europeans, like the rest of advocates for abolition of social inequality and affirmative action elsewhere in the world had never been sold on pragmatism as they have been on insincerety towards the cause. They air their views safely esconced in a $200k banquet dinner and come away sozzled night after night, well islanded and insulated from those that go thro the grind, to whom such rare political gestures are a great boon. Educational equality if not the wider umbrella of Social equality is aspirable. Their protests make me safely suspect their intentions because unless the poor remain poor, they’ll never get unskilled workers to toil at their suburban factories.

History has the record of the disastrous outcomes of all earlier attempts to bring about forced social equality. USSR and East Europe gave up, China, though belatedly, recognized the folly and endorsed laissez-faire.

Together, they’ve ensured attempts at social equality live on as a myth. Making for occasional good reading, clearly a hypothesis for leftist pretenders to make a living. But a non-starter for all practical purposes.

Ah, yes. Lately we know of a new kind of equality thrust upon guileless citizen by even capitalist governments. America is projected to have $53 trillion in today’s dollars in federal liabilities and unfunded entitlement promises such as Social Security and Medicare. These amount to more than $440,000 per household, nearly ten times the annual income of the average household. Over time, taxes would have to double to pay for them.

There you grant equality – to your children and grand children for no fault of theirs. Did I hear taxation without representation?

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No inequality is complete without a serious inquiry into the subject of race. While racism is less apparent in Chile in Argentina and other Latin American countries it does exist there – the more indigenous your background the more you are viewed as a “negro – black).

By the way – despite concerns about the growing budget deficit (an interesting connection made between that fact and the subject of social change made by Krishna in the prior comment) Most serious economists link deficit spending with future increased productivity (those voices are drowned out by what passes for commentary in the media). The fear of deficit is often used as an argument against social change spending and policies and it is frustrating.

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I don't know the specifics of the program in Chile, but generally speaking,
with vouchers parents will send their kids to the best schools. So the best
schools will enroll more students (students who tend to be more driven) and
the worse schools will see a decrease in enrollment and enroll less
motivated kids. This creates more inequality in the education system than if
the government just funded all schools equally and forced people to go to
their local school.

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I don't know the specifics of the program in Chile, but generally speaking,
with vouchers parents will send their kids to the best schools. So the best
schools will enroll more students (students who tend to be more driven) and
the worse schools will see a decrease in enrollment and enroll less
motivated kids. This creates more inequality in the education system than if
the government just funded all schools equally and forced people to go to
their local school.

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But Ben… doesn’t that just make everyone equally receive a bad education?

Despite all the efforts of the left people are different and have different aspirations and skill sets. Not every high school should be a college prep school nor should every school cater to the lowest common denominator. Many people are quite happy toiling about with respectable trades such as carpentry and plumbing.

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The Horatio Alger story formula DID include the boy pulling himself up by his bootstraps… BUT the protagonist’s success also depended on the kindness of an already-wealthy man who conveniently showed up to help him work his way up.

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If the US were really a meritocracy, chronic underachievers and failed businessmen like George W Bush would never become president.

(Neither, for that matter, would womanizing cads whose fathers can afford to buy presidential elections like John F Kennedy’s.)

In his book America’s Sixty Families, the economist and journalist Ferdinand Lundberg exposed those modern Medicis of business and finance whose heirs still dance a jig on the corpus of the middle class of both continents.

Wilkinson asks of American income inequality: “Does it threaten imminently to transform the United States into an irreversibly stratified illiberal regime, dominated generation after generation by the rich and well-connected?”

Strictly speaking, no, because this happened more than eighty years ago.

I would say anyone who believes democracy in the US has not already been destroyed and that we are not ruled by the rich in a “plutocracy managed by oligarchs” is deluded.

In spite of his reasonable tone and his defensible thesis that income inequality, in isolation, tells us very little, Wilkinson’s screed still reads like typical apologia for the super-rich– the same old propaganda disseminated through media outlets and think-tanks like the supposedly libertarian Cato Institute.

Wilkinson shows a surprising awareness of reality when he concedes that, “There is overwhelming reason to believe that in the United States the deck really is stacked against some people.”

I wouldn’t argue with Williamson’s statement that “the idea that fixing all this [vicious injustices] somehow requires ‘fixing’ the pattern of incomes is an excellent way to avoid the real problem and fix nothing.”

But I notice that Wilkinson et al ignore the mammoth redistribution of income that occurs, for example, when the oil, gas, and mining industries are given carte blanche to plunder the public commons, as occurred under the Reagan and Bush II administrations.

Even such features of the welfare state as food-stamp distribution are effectively massive subsidies for the grocery business.

None benefits more from this ‘socialist’ largesse than Wal-Mart.

The party line of the uber-rich, as delineated by Lundberg in 1937, goes: “huge fortunes are necessary so that industry may be financed; the benefactions of great wealth permit advances in science, encourage writers and artists, etc.; the lavish expenditures of wealthy persons ‘give employment’ to many people”.

“Wealthier Americans, Broda and Romalis
observe, spend a much larger portion [of their budgets] on services provided by local labor.”

“Many enterprising Americans have indeed
accumulated vast fortunes turning out ever higher-quality goods at ever lower prices. But in the process they have also minimized some of the material inequalities that matter most.”

Wilkinson does concede: “Some wor-
rying inequalities—for example, inequalities in access to a good education or to quality health care—may indeed be widening…”

Shocking.

Amazingly, Wilkinson even admits the glaringly obvious truth when he summarizes the Milanovic, Lundert and Williamson study: “The idea, in a nutshell, is that a generally wealthy population is a sweeter target for plunder by the ruling political class— the people with access to the coercive instruments of government—than is a generally poor population.”

I couldn’t have said it better myself.

You can’t squeeze blood out of one of Dexter’s corpses.

I emphatically agree that “If you believe that American income inequality does reflect injustice in the structure
of its institutions, then it is important to identify precisely where and how the system is unjust instead of simply fixating on the fact that there is inequality.”

That’s why I read Ferdinand Lundberg’s America’s Sixty Families.

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Actually, I’ve come to know that most Euro nations, esp France do not have equal levels of social mobility. While the educational system remains very equal with testing done across the board to get into free universities, the job market is very closed off to many from Arab-colonies (Algeria, Morrocco) which has led to a well educated sub-class of frenchmen.

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It seems like there is a (significant) correlation between public policies and increase in the income inequality. Implementation of minimum wage rate, deregulation, as well as anti-crisis measures deepen the income gap. This was proved by many of the past examples. The example of Latin America with governmental interference making the inequality lower, is very interesting one. However, I think the reason beyond income inequality decrease in those countries is in the nature of state itself rather than in the efficiency of public policies.

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